The Purpose of the General Counsel

INTRODUCTION 

The General Counsel has been a recent phenomenon in the corporate world, not older than 25 years, by some estimates, in the United States. In the European and Asian jurisdictions, the corporates soon followed suit. There is a distinction between the traditional Legal Head and the General Counsel as we know it now. If you had finished the law school in the year 2000 as I did, you would want and dream to be an arguing counsel on a dais before a judge. Your purpose was to represent your client in quest for justice! Everything else, and especially a full time job on any payroll was looked down upon. It was thought, as to what is a lawyer without his independence! By no stretch of imagination, you could have envisioned the job that many would call their career and calling by the name of General Counsel for a corporation. This article is therefore an attempt to put in perspective the exact purpose of a General Counsel in executive management of a corporation.

In the days approaching to the turn of the millennium, the corporations would hire lawyers only as a liaison between the corporation and the outside world, especially the outside lawyers engaged in litigation, M&A etc. To take up a job like that, in the first place would mean to acknowledge one’s inability to succeed in the courtroom and a definitive step down. The corporate in-house work was not considered a smart career option, and often did not attract the brightest of the legal minds. 

This article reflects of my learnings as I have been trying to make sense of my own purpose all these years and connect the dots looking back 20 years of my career. I couldn't have written this article 5 years back, don't think even 10 years back, and definitely not 15 years back. This creature of business was still in evolutionary stage in those years. I have been lucky that I had international exposure for last 13 years and was an APAC counsel in 2012, which turned into a global role in 2014. In college days one could only dream of such a possibility while studying Comparative Law or Private International Law. By 2005, the world was getting flat as recorded in the widely acclaimed book by Thomas Friedmann the title of which was derived from a statement by Nandan Nilekani, former CEO of Infosys- The World is Flat!

With the advent of Globalisation happening and world getting flatter, the corporations expanded to multiple nations and thus the role of professional managers grew with it. The internet had brought an outsourcing boom and by 2007, and we were working on a US law project from Noida in India. In 2012, I had taken a role of Regional Legal Counsel for Asia based out of Delhi, these roles were earlier based out of Singapore or Hong Kong.

By this time all the major corporations had General Counsels and it is their work which brought the prestige and positioning to this new role. I have deep gratitude for them. I only feel lucky and though it appropriate to share the result of my experience and introspection for the benefit of understanding of younger lawyers, businessmen and HR professionals.

The story of the in-house legal department in its present glory started with General Electric Inc., which was the first corporation to have a full fledged in-house legal department in the 90’s. Benjamin W Heineman Jr. who is widely credited with revolutionising the role of General Counsel joined GE only in 2007. Therefore, one could surmise that the importance of the role grew mostly in the first decade of 2000’s and the rest, as they say, is history.

PROBLEMS TO BE SOLVED AND FOR WHOM

As the complexity in the corporate operations grew larger, not to mention the expansion to other geographies, it became ever more difficult to navigate through the compliances to the laws and the impact of different cultures.

The multinational presence sees the General Counsel often representing the corporate before government authorities, before third parties, in disputes and strategises on difficult situations involving litigation or a risk thereof. She is also a key negotiator for strategic transactions. Besides she is now a budget holder for the Legal Department and is responsible for the performance of other lawyers on the team.

The General Counsel is the key leader for and the guardian of the code of conduct and ethics but bring a high performance and ethical culture to the organisation by holding the employees accountable to the code.

For example, in my last role, at any given point of time, the corporation complied with more than 50 enactments, had more than 24000 employees all over India, and signed hundreds of client and procurement contracts annually. If there is an inorganic growth strategy, one could add the due diligence and Merger & Acquisition activity to that. Earlier to that, the corporation had presence in more than 60 countries with network of service partners, JV's and representations. In my short career, I have negotiated contracts and handled contractual disputes on all the continents! Just to present the complexity even at the cost of sounding boastful.

It would take only a small onerous term in a contract to lead to a drain of millions of dollars, or the expectation mismatch with the clients, or non-compliance of a labour code seemingly innocuous to give a multi-million set back to a corporation. And it always shows on the bottom line immediately, and top line eventually.

THE COST OF THE PROBLEM

In the Netflix show Scam 1992 - Harshad Mehta Story, when Harshad Mehta had lost his game and involved in multiple litigation, he sees his brother reading a thick book. He asks him what is he reading, the brother informs him- the law! Harshad is still arrogant and asks what is the point, to which his brother responds, "Bhai, kayede mein reheinge to hi fayeda hai!" Meaning, Brother, we could only benefit if we remain within the law. Harshad Mehta's brother went on to become a lawyer later on.

Winning, by definition is only possible if the game is played by the rules. The best players are those who know the game and who know the rules, yet keep the ethics above all! If you are non-compliant, you are not in the game. If you are compliant to the rules, you could be in the game some day, but if you are ethical, you are definitely in the game and ahead of the curve as well. If you are playing by either clever interpretation or reading between the rules, you are a headline in the making!

Litigation is one of the biggest drain on a corporation’s resources and energy, it may go to the extent of threatening the very existence of corporate in terms of reputation risks it poses, not to mention the penalties and imprisonment terms for the directors of the corporations. Almost all enactments have enforcing clauses by way of imprisonment of the directors or fines which can be avoided if shown that steps were taken to avoid the occurrence of the event in question. Litigation or Governmental action could arise out of faulty contracts or organisation's policies devised to govern itself. 

Faulty decision-making and ill-informed strategy about the legal landscape often compounds the problem by adding penal interest to the dues etc. In fact, one could pick up the financial newspaper of any day and see it rife with actions which could have been taken in time to avoid the embarrassment. Or, on the positive side a multitude of deals and actions going through everyday smoothly resulting in growing the trade and commerce, and hence the economy of the world.

A classic example of faulty decision making by the industry can be seen in a plethora of litigation culminating in the famous Surya Roshni case where the definition of wage and contributions to be made by employer under Section 6 of the Employee Provident Funds and Miscellaneous Provisions Act, 1952, were under consideration. The entire industry was defending a clever, self serving interpretation of provision of law, perhaps as it was guided in that manner. Even a rookie lawyer couldn't see in any ambiguity in it, and it were to happen, the Supreme Court ordered in line with its own earlier 1963 judgement in Brige and Roof Company case. The court's order empowered to collect all the Provident Fund dues, including arrears and interest, many corporations would pay millions in interest only, which itself is mandated by the EPF Act. A Tier 1 law firm, concludes in its blog* that the cost of doing business would go higher because of the Surya Roshni pronouncement, whereas the cost was reduced wrongly at the first place, if you read the EPF Act, and Bridge and Roof Company Judgement, may be you would not even choose to litigate!

HOW THE PROBLEM IS SOLVED

In terms of circumspection and navigating the legal and commercial landscape of any geographies, it is not the road blocks which where the game lies, any one can see a road block and find a work around. It is the land mines which pause the real obstruction, since they are not visible in the VUCA world. VUCA is an acronym – first used in 1987, drawing on the leadership theories of Warren Bennis and Burt Nanus – to describe or to reflect on the volatility, uncertainty, and ambiguity of general conditions and situations. Originally introduced in the US Army War College, the term started taking ground since 2002 and is part of Strategic Leadership and applied in wide number of corporations.**

The counsel, by his training and learning, aside of the knowledge of laws, she brings some key skills to the table, for example the skills of negotiation, the skill of query to ascertain truth, a moral compass to guide on questions of ethics, a skill in finding more advantageous paths to solving problems, to name a few.

In his article in the HBR- 'The Rise of the General Counsel'***, Ben Heineman brings out two critical trends in last 25 years which show the rise in status and role of General Counsel in corporations.

• The General Counsel is the go-to counselor for the CEO and the Board. She is called to participate in the strategic meetings and provide wide ranging counsel as the decisions were made, rather than to clean up the messes after they occurred.
• A shift in power from outside private firms to inside law departments, which brings in huge savings in terms of law firm expense of the corporate where the billing could go up to 600 USD an hour or 10000 INR an hour (just a broad estimate of the median rates).

A more recent development, if I may add, General Counsels are often seen to set up post execution contract management functions which track the contract performance through its life cycle. This further helps the management in portfolio management of the contracts a corporation has. As per IACCM (International Association for Contract and Commericial Management), normally an organisation loses 9.7 % of revenue in contract execution. Proper controls and audits are required to check this. I have tried this with CA firms but not to that success in my opinion as Accenture has with its established Contract Management function.

THE BENEFITS & THE UNIQUE EDGE

The General Counsels are lawyers who are industry agnostic, they are generalists as the title suggests. The depth and width of their knowledge and experience are the tools with which they work cutting across the industries. I have friend who was a GC for a tech company, then a tyre manufacturer, a card company, then a start up, and now has his own venture. There are many more. To cite my own example, I have worked in ITeS, Consulting/Tech/BPO, Engineering and a Food company.

As part of the top management, a GC is far more than a technician of law and related matters but helps shape discussions and debate about business issues. “Having broad gauged, high integrity, business savvy, lawyers around coffee pot and around the conference table increases speed and productivity. These lawyers (General Counsels) operate seamlessly in business teams, gaining credibility by helping more swiftly to achieve performance goals, and by assisting, business leaders promote high integrity down the line inside of the corporation.”

Between the 90’s to now, the General Counsel has undergone a metaphoric change it its role from a mere litigation liaison to integral part of the executive management of the corporations. With a seat on the table, the General Counsel has assumed the critical role of ethical watchdog, tasked with ensuring compliance, manage the overall risk profile and be the chief ethics officer of the corporation. She is often referred to as the ‘conscience of the corporate’.

PROOF OF THE PUDDING

In recent times it is observed that corporates have undergone a major metamorphosis in the way the general population experiences it. The principle of separation of Ownership (Shareholders) and Management (Board of Directors) is more pronounced and so is the accountability of the management to the shareholders and the society. With the advent of social media it is all the more palpable. Corporates are more than a business today, they are a social construct with the shareholder, the customer, the management, the employee and the society and environment, all stakeholders in its operations and existence, with a focus on sustainability!

The role and purpose of the General Counsel is now enhanced manifold, it could be evidenced in the rising pay and prestige attached to the role. In some corporations it is being viewed at the same level as CFO and in the US, the position is even occupied by former Attorney Generals, White House Counsels and Federal Judges etc. 

In changing landscape of business has seen some stellar CEO’s coming out the ranks of general counsels. Kenneth Frazier of the pharma giant Merck & Co. (known as MSD outside the US) was its general counsel who handled claims of 20-50 Bn USD, later went on to become its CEO in 2011. When I was working with Accenture, Julie Sweet had been brought in as a General Counsel from a law firm. She later on became the CEO of Accenture’s US Business in 2015 and later CEO for Accenture as a whole in 2019. Closer home in Gurgaon, Aditya Ghosh, the CEO of the most successful airlines, Indigo was also its general counsel in 2008 when he was made the CEO.

CHALLENGES FOR A GENERAL COUNSEL

The biggest challenge a General Counsel faces is in balancing interests of stakeholders. ‘On one hand a lawyer fails to maintain independence from management, they may feel significant pressure to enable then inhibit corporate activities.’ This is somewhat akin to the Health & Safety Officer’s role. I had once seen an HSE officer going lenient on activities and when I asked him for the reason, he said, ‘else the business will suffer!’ This to my mind was a classic case of ‘compromised business parters’. 

‘On the other hand, if the general counsel does not act out its role as the corporation’s voice of query or concern, if not done effectively may result in management engendering distrust, and undermine the ability to advise the Board of what is best for corporation.

One would perhaps keep it in mind that a lawyer is always bound by the Code of Conduct & Ethics of his professional body, therefore the performance of a Counsel even for a drug cartel would be good only if tells the cartel upfront the legality and consequences of the actions which is required by his own professional code, else she risks loosing her licence to practice law. Some think that law is about a clever interpretation or dodging of a provision, which is not the case. Even if you partially succeed for a moment, there would be always a sharp lawyer on the other side as well!

However, in a typical Indian set up, it is observed that the Legal Department is reporting into the CFO. That has partly to do with Indian culture and not seeing law as anything more than compliance, or like the older corporations in the west, the Counsel’s role as a liaising role with the external law firm, it is made to be reporting into the CFO or to the business. Also, if an organisation views legal department as a service to facilitate business, they are made to report to business which may result in the lawyers obligation contradict with the professional Code of Conduct to which they have sworn unto.

As per the Denton’s article - The Role of GC in Corporate Governance****, it is argued that “it will require setting out the GC's role as an agent of the corporation rather than an agent of the management to help facilitate conflicting interests fulfil their mandates collaboratively and successfully.”

CONCLUSION

Like our Health & Safety Officer above, Heineman is quoted in the HBR article*****, citing an example of Walmart in Mexico where it was allegedly involved in a bribery scandal and subsequent cover up as a cautionary tale. It has been my experienc too that managing subsidiaries in developing economies are a nightmare to speak the least, both because of laws and culture.

““Both the general counsel of Wal-Mart Mexico,” he says, “who is alleged to have orchestrated the bribery scheme and then ended the investigation with a superficial report, and the general counsel of the company—who allegedly gave no support to other headquarters lawyers who wanted a full, independent investigation—apparently acted as ethically and legally compromised partners of business leaders and not as guardians of Wal-Mart’s integrity. The company could pay a heavy price for those alleged failures.”” (Emphasis added)

This essay cannot be concluded without an eulogy to Mr. Nanabhoy Palkhivala, one of the greatest jurists India has ever produced. For the international readers, a search on him and his work would be worth while. He is my ideal in many ways and mostly because he was a constitutional lawyer and corporate lawyer rolled into one. His speeches on Union Budget would gather a stadium full of audience in Bombay. Can be easily said that he was the rock star of Tax law. He was instrumental in crytalising the law on constitutional amendment and was the founding Chairman of Tata Consulting Services (TCS) in 1968 and remained so for three decades. With such strong foundation, it is no wonder that TCS is a global giant overtaking Accenture this year in global revenues. I encourage you to see the documentary about him in the notes below.****** 

Last but not the least, for a great GC, Heineman says, “The first question is, ‘What is Legal?’ and the Last question is, ‘What is Right?’

Notes and External Links

*https://www.nishithdesai.com/information/news-storage/news-details/newsid/5368/html/1.html

**https://en.wikipedia.org/wiki/Volatility,_uncertainty,_complexity_and_ambiguity#:~:text=VUCA%20is%20an%20acronym%20%E2%80%93%20first,to%20describe%20the%20more%20volatile%2C

***https://hbr.org/2012/09/the-rise-of-the-general-counsel

****https://www.dentons.com/en/insights/alerts/2020/january/29/the-role-of-general-counsel-in-corporate-governance

*****https://today.law.harvard.edu/feature/in-the-drivers-seat-the-changing-role-of-the-general-counsel/

******Nani- The Crusader https://www.imdb.com/video/vi2726146585

Also read: Corporate Financial Reporting under the Companies Law